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SEC Halts Crypto Hedge Fund Offering for Failing to Register

The manager of a crypto hedge fund offered its investors rescission and agreed to pay a $200,000 fine for failing to comply with the securities. The SEC argues that the fund, which invested in digital assets, was “engaged in the business of investing, holding, and trading certain digital assets that were investment securities.” Consequently, the offering, which did not comply with Regulation D’s private offering safe harbors, should have been registered under the Investment Company Act. The SEC charges violations of the registration provisions of the Securities Act and the Investment Company Act as well as the antifraud rules. This case is the SEC’s first enforcement action against a crypto hedge fund manager for failing to register under the Investment Company Act.

OUR TAKE: Most significant is the SEC Enforcement Division taking the position that a fund that invests in digital assets is subject to the securities laws. It remains to be seen whether others will challenge that position in the courts.